How to Buy Silver

As silver hit a 29 year high many investors may be wondering how to buy silver. How to buy silver is to purchase silver bullion or silver coins. How to buy silver is typically when the price is low and not when it reaches a nearly thirty year high. If one purchases rare silver coins one is also investing in collectables which may outstrip silver itself in investment potential. Silver is selling at the same price as in 1981 when it rebounded after a drop from its 1980 all time high of $49.45 an ounce. Silver had been in a twenty-four year trough at $5 an ounce until it started moving up in 2004. It rose to over $20 an ounce in 2008 and fell back to below $10 an ounce at the end of the year. It took silver a year to return to $20 a share where it hovered for a year. Then it started rise again and in the last few months has risen dramatically. Many buyers entered the market recently when there was a roughly ten percent correction. If one poses the question, is silver a good investment at this point, a little history and a little perspective are in order.

The smart investor thinking about how to buy silver needs to constantly ask himself what is a good investment and what are safe investments? When chaos threatens throughout the world, investors look to precious metals such as gold and silver as safe havens. Ongoing unrest in Egypt, riots in Saudi Arabia, threats of labor unrest in the USA all have an unsettling effect on investors. To the extent that silver is going up because of short term political unrest there is always the risk of a correction when things settle down. To the extent that the huge national debts taken on in response to the worse recession in 80 years stress national currencies, silver may remain a good investment for years to come as the dollar declines in value and silver rises. A bit of history, however, is instructive. This has to do with the Hunt brothers and their attempt to corner the market on silver.

How to buy silver is to keep in mind the lesson of the Hunts. Nelson and William Hunt, sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., started buying silver in the early 1970s. By 1979 they accumulated roughly a third of the refined silver bullion in the world, excluding that in government vaults. Silver went from around $6 an ounce throughout the decade to over $48 an ounce in the last months of 1979 and to nearly $50 an ounce in January of 1980. The Hunts were heavily leveraged and when the market corrected the Hunt brothers were faced with a margin call of $100 million. Many investors jumped on the band wagon as prices skyrocketed in the heady days of late 1979. Inflation had been rampant throughout the later part of the decade and many saw silver as their opportunity to regain wealth eroded away by the inflation, or stagflation, of the era. When the price of silver began to fall it was dramatic, falling 50% in four days and to less than $12 an ounce two months after its historic high. It was on an especially brutal day, called Silver Tuesday, that the Hunts were presented with the $100 margin call and the risk of $1.7 Billion in losses. The prevailing opinion was that several Wall Street investment houses and large banks were put at risk by the situation. A $1.1 Billion line of credit for the Hunts was cobbled together by a consortium of US banks which stabilized the situation and left silver to go into its twenty year trough. With this little history lesson in mind we suggest that when learning how to invest in any investment vehicle, especially in silver, that the investor start small, do his homework and learn from the lessons of history.

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